Cabinet papers reveal challenges of 86/87

IT began with the "banana republic" and ended with the doomed "Joh for Canberra" push.

The years 1986 and 1987 were an era of change in Australian politics.

The then-Labor federal government led by Bob Hawke was grappling with the breakdown of the old economic order and moving steadily toward policies based on freer markets.

Tensions within cabinet were high, the rivalry between Hawke and his treasurer Paul Keating was rising, and an election was looming.

Keating used an interview with influential 2UE Sydney radio broadcaster John Laws on May 14, 1986, to make clear the importance for reforms that were riling Labor's union base.

"If this government cannot get the adjustment, get manufacturing going again, and keep moderate wage outcomes and a sensible economic policy, then Australia is basically done for," he said.

"We will end up being a third rate economy ... a banana republic."

The banana republic comment caused a political firestorm.

But it's generally agreed he was right to make the case, cabinet documents for 1986 and 1987 released by the National Archives of Australia show.

Archives historical consultant Dr Jim Stokes notes Labor was in the middle period of one of the longest running and highly regarded governments in Commonwealth political history.

Both sides of politics were struggling with the breakdown of an "old Australia" wedded to protected and unionised industries, centralised wages and direct government ownership and control over many areas of the economy - including airlines and telecommunications.

Keating's "banana republic" warning was made against a background of an escalating balance of payments crisis and declining exchange rate.

The Australian dollar had, naturally, started around parity with the US dollar when Keating floated the currency in 1983. But by late 1986 it was down to around 60 US cents.

As a result, Australia was paying much more for imports than it was earning from exports and its terms of trade was out of whack.

"The way we responded to that meltdown was pretty impressive and perceived as such at the time," Gareth Evans, a minister in the then-government, told reporters at a briefing.

Labor embarked on some unpalatable measures, like deferring tax cuts and increasing some taxes.

"The other big decision was to really go hard on the government business enterprises - the corporatisation and privatisation of a whole bunch - with the exception of a handful of icons," Gareth said.

"This was comprehensively against the Labor party tradition."

Now-Federal Attorney-General George Brandis, whose portfolio responsibilities include the national archives, said Australian governments were of "variable quality".

"But certainly those on my side of politics do regard the government in which Gareth served as the most brilliant of the governments provided by our political opponents, certainly in our lifetime," he said.

But for all of Labor's struggles, the government was in better shape than the opposition.

John Howard had replaced Andrew Peacock as leader in 1985. But Howard found it difficult to establish an authoritative leadership in a party deeply divided between economic and social "wets" and "dries".

The Joh for Canberra - initially Joh for PM - campaign to clean up the "Canberra socialists" wasn't helping.

Launched in 1987, the movement was founded upon the deluded belief that Queensland premier Joh Bjelke-Petersen's state popularity could be extended to the federal stage.

In March, a poll suggested a Joh and Peacock ticket could hand victory to the coalition.

Then a month later, the National Party leader Ian Sinclair took his party out of the federal coalition to avoid a split between Queensland MPs and those from other states.

Hawke, who must have wondered at his good fortune, called the election six month early.

Caught on the hop, Bjelke-Petersen didn't stand and the Joh for Canberra campaign fizzled out.

Labor was returned on July 11, 1987.

Evans says the Joh for Canberra campaign was completely bizarre.

"It wasn't just opposition collapse and dysfunction that enabled us to cruise so smoothly to the election," he said.

"It was the fact that we were, and were perceived to be, a highly competent functional government.